IRS Confirms Returns Were Mishandled

Internal Revenue Service employes in Philadelphia, Kansas City, Mo., and Austin, Tex., discarded at least 100 tax returns in 1984 and 1985, according to IRS documents made available yesterday.

The disclosures are the first IRS confirmation that the service has mishandled taxpayer returns, and not merely correspondence or other documents. Until now, allegations of return-destruction have been made only in press reports and anonymous telephone calls to congressional offices.

The documents also reveal numerous other incidents of document destruction and improper procedures.

For example, an IRS employe in the Memphis service center hid processed returns to improve his job performance, and was later fired. Another in Greensboro, N.C., falsified documents to cover up embezzling $5,411.82 and was accused of shredding returns. He eventually was convicted of embezzlement, although the shredding charges were not proven.

An employe in California, who later pleaded guilty and was given three years' probation, hid 39 bags of mail, including $800,000 worth of uncashed refund checks, in his home because he could not process them on schedule. An employe in Atlanta tried to flush records of a taxpayer's delinquent account down the toilet in 1983. And 27,000 short forms were not punched into the computer in Austin on time, delaying refunds to those taxpayers for six to eight weeks.

The disclosures were first reported in yesterday's Philadelphia Inquirer, which obtained the IRS documents under the Freedom of Information Act. The documents were made available to The Post separately yesterday.

The documents, mostly memos from directors of the 10 IRS service centers around the country, are the results of a survey ordered last summer by Commissioner Roscoe L. Egger Jr. to see if numerous allegations of return- and document-shredding were true. The findings seem to contradict frequent assertions by Egger that IRS employes have not destroyed tax returns. On April 10 of this year, he called allegations of return-shredding at the Philadelphia Service Center "sheer, utter nonsense."

IRS spokesman Wilson Fadely said yesterday that the incidents represent a minute portion of the one billion documents the IRS handles every year.

"Our internal security division is constantly monitoring these areas," Fadely said. "There have been very few instances over the last several years and the instances we do discover, we take action." He pointed out that the number of returns mentioned in the documents is far smaller than anonymous allegations of shredding have indicated. By some accounts, more than 27,000 returns were alleged to have been shredded in Philadelphia.

The disclosures of return-destruction in the Philadelphia, Kansas City and Austin service centers come during what even IRS officials admit has been their worst filing season in recent history. A new, $103 million computer system delayed return-processing and mailing of refunds for millions of taxpayers, although only 30,000 of them have not yet received their refunds for 1984.

Other IRS foul-ups this year have included the failure, through human and computer error, to record $300 million in withholding tax payments made by more than 26,000 corporations in the mid-Atlantic region, the destruction of thousands of pieces of correspondence in the Fresno, Calif., office before the affected taxpayers were notified their cases were closed, and the destruction of at least 5,000 pieces of taxpayer correspondence in the Austin center by the order of a supervisor who later resigned.

These and other reports have moved Congress to increase the IRS budget despite requests by the Reagan administration to cut it. A House-Senate conference committee has agreed to restore about 1,200 positions the administration had wanted to cut, and add almost 3,000 jobs above that.

The National Treasury Employees Union, which represents most of the IRS's 90,000 workers, has contended the foul-ups spring from too much pressure on employes to meet "production" quotas. Under service procedures, employes who compile, examine and record taxpayer documents must try to process a minimum number of forms per hour.

Specifically, the IRS documents say that employes:

*Tossed 92 tax returns into a wastebasket in the Philadelphia service center in 1984. The report said investigators were "unable to pinpoint responsibility."

*"Inappropriately discarded" in Austin six amended 1040 forms, which were signed, along with two corporate income tax forms, two unprocessed checks, "numerous items of taxpayer correspondence requiring a response," a case file tracing a payment, and several requests to make installment payments.

*Placed amended form 1040 returns into a "burn bag" in Kansas City. The employe involved repeated this action several times, and eventually resigned.

In Philadelphia, where returns from the District and Maryland are filed, the documents also cited cases of internal records destroyed or hidden, records of a criminal case missing, requests for photocopies of returns destroyed and an audit examination missing.

Several of the incidents involving documents other than returns, such as the California, North Carolina and Memphis cases, had already been publicly disclosed. It is a federal crime to tamper with tax returns, and employes who destroy or discard other taxpayer documents are subject to administrative proceedings.